With the recent news that the U.S. government may run out of money to satisfy its debts by Oct. 18, you may wonder what money is and where exactly it comes from. In short, the U.S. dollar is a form of legal tender.
Legal tender can come in the form of banknotes, paper currency, or coins. In general, it is the tender recognized by law as a means to satisfy financial obligations. Once the law recognizes a type of legal tender, the receiving party must accept the form of payment. Legal tender's purpose and function are to enable the U.S. courts to determine whether satisfactory payment has been made for debts owed.
In the U.S., there are two types of notes: U.S. notes and Federal Reserve notes. U.S. notes (out of circulation since 1971) became the legal tender in the states when the Legal Tender Act of 1862 was passed to help finance the Civil War. Federal Reserve notes, what we know as dollars today, became legal tender in 1913 with the passage of the Federal Reserve Act of 1913. Since then, the U.S. dollar has been recognized as the world's reserve currency.
To get its hands on some of this cash, the Federal Reserve Board orders new money from the Treasury Department's Bureau of Engraving and Printing. Currently, the Bureau of Engraving and Printing issues the following denominations: $1, $2, $5, $10, $20, $50, and $100. The highest denomination ever printed was the $100,000 Gold Certificate.
Each note contains special indicators such as a serial number, a Federal Reserve indicator, a seal, and a series year. There are currently about $1.2 trillion of U.S. currency in circulation. Now that is a whole lot of money!
The Federal Reserve bank is also in charge of coin minting, which it does through the United States Mint. The Federal Reserve received the power to mint coins through the Coinage Act of 1792. Today, the Mint currently produces between 10 and 20 billion coins per year. While this is so the Mint may need to think of producing more coins, the COVID-19 pandemic led to a US coin shortage. I know it does not make a lot of sense, but the U.S. needs more cents!
Why do some businesses accept Bitcoin?
As previously stated, the Fed has accepted the U.S. dollar as legal tender, but private businesses may have policies about what types of legal tender to accept. For this reason, some businesses have begun to accept Bitcoin as its form of legal tender.
Most notably, the U.S.'s second-largest mortgage company, United Wholesale Mortgage, plans to accept Bitcoin as a form of legal tender. Sounds mighty nice to use Bitcoin to purchase or rent your next piece of real estate!
In addition to United Wholesale Mortgage, many condos, apartments, credit card companies and even 401(k) plans are also accepting Bitcoin. While many U.S companies have begun to accept Bitcoin, it has yet to become the national currency of the United States, and it may never reach that status.
The International Monetary Fund states that the cost of making cryptocurrencies a form of legal tender outweigh the benefits. Many problems associated with this form of currency are price fluctuation and the environmental problems that mining cryptocurrency causes. In spite of the IMFs warning, some countries have moved ahead and given Bitcoin the status of legal tender.
El Salvador is one of the countries that has moved forward on the journey of recognizing digital currency as legal tender. This year, El Savadorian President Nayib Bukele declared Bitcoin its national currency. Now the country has more than 200 Bitcoin ATMs, and a third of the country's population is currently using Bitcoin.
While the big, shiny gold coin has become popular and also has gained legal tender status in some countries, for now, the U.S. dollar is still the note that is federally recognized.
Is Bitcoin taxable?
For tax purposes, Bitcoin and other forms of cryptocurrency are classified and taxed as property. So, if you receive payment in the form of Bitcoin, it must still be recognized and is still subject to taxation.
The Millionacres bottom line
Since 1862, the recognized form of legal tender has taken on many shapes and forms, and the No. 1 drivers of this change have been individuals and businesses.
No matter the changes that are being made, for now, the most widely accepted currency in the U.S. is the dollar. This form of legal tender can help you purchase anything you need all across the globe! To borrow the words of hip-hop icon Puff Daddy, "It's all about the Benjamins, baby!"